Publication: Monitor Volume: 6 Issue: 153

Using a few eager Western financiers in Moscow as its amplifiers, the Russian government is murmuring the old “Volga Boatmen’s” song to Caspian countries, Western oil companies and Western governments. According to those middlemen in Moscow, the Volga River offers a most convenient export route for Caspian oil. Producer countries and companies should send the oil up the Volga by barge or river tanker. The crude would be processed by Russian refineries at Volgograd and Samara, situated on the middle course of the Volga, the total processing capacity of which is officially put at 850,000 barrels per day. Caspian oil in excess of that amount could move on to the St. Petersburg region, to which the Russians plan to lay an export pipeline complete with a large-capacity terminal (“Northern Pipeline System,” NPS) for export to northern and western Europe.

A key element of the scheme–as summed up by its proponents–is the “swap system.” It means in this case that Russia, using her terminals or pipelines, and acting on behalf of Caspian oil producers, would export Russian oil equivalent in value to that received from those producers, and hand them the proceeds. The economic and political advantages accruing to Moscow from this scheme are clear: transit revenue, profits from the refining of crude and prolonging the life of those obsolescent Soviet-era refineries (the real processing capacity of which is probably well below the officially stated one).

One big economic disadvantage, unmentioned by proponents, is the high cost of exporting oil by river. Transport by internal waterways is a relict of Soviet times. Post-Soviet Russia is left with a large, now partly idle and decrepit fleet of specialized river vessels. Suited in some ways to Russia’s geography, river transport would be unprofitable to oil exporters because it involves small volumes per transport unit. Moreover, the plan presupposes massive investments for building the NPS in the direction of the Russian head of the Gulf of Finland. Such investments are beyond Russia’s means. Moscow appears to view the Volga scheme as a means to attract Western financial support to the NPS.

The Volga is being offered as an alternative to the planned Baku-Ceyhan (Turkey) oil export pipeline, which is favored by producer countries and supported by the United States. The Volga route’s Moscow proponents insist that Baku-Ceyhan is a “political” rather than an economic project, and that the Russian export route they propose is “economics freed of politics.” The political implications of this proposal, however, loom larger even than its evident economic disadvantages. Diverting any sizeable amount of Caspian export oil via Russia would hand Moscow a powerful economic political and leverage over Caspian countries, jeopardizing their independence and their links with the West, and throwing them back into Moscow’s orbit.

Iran has until now been the chief proponent of oil swap deals with Caspian post-Soviet countries. Tehran’s swap offers got almost nowhere due to one inherent weakness: The amounts of Caspian crude to be sold to Iran would be limited by the processing capacity of refineries in northern Iran and the oil product requirements of that part of Iran. Now, however, Russia suddenly seems to emerge as a swap proponent in her own right, potentially in competition with Iran. This development, or at the very least its timing, seems almost certainly related to a rift between Moscow and Tehran over the status of the Caspian Sea (see below) (Reuters, ANS, IRNA, August 1-2).